Property Taxes Bolster City's Budget

HAMPTON — The cost of running the city has increased significantly in the past decade and property taxes have been paying for a larger share of Hampton's expenses.

A recently-released annual financial report showed that local tax revenue went from $132.4 million to $231.27 million between fiscal years 1999 and 2008. And general property taxes - on real estate, automobiles and other personal property as well as business personal property like company trucks and computers - became a larger part of the total. Those taxes increased from 66.5 percent to 69.32 percent during the same period.

"Relatively speaking, that's not a significant increase," Hampton Director of Finance Karl Daughtrey said of property taxes relative to the total of all local tax revenue. "I think that will correct itself."

Over the last 10 years, the city has added police officers and firefighters, committed to building new schools, added a convention center, and contended with rapidly increasing costs for everything from diesel fuel to employees' health insurance.

To pay for these costs, Hampton uses money from state and federal funds, revenue from fines, permits and licenses, and services ranging from landfill fees to ambulance care. But the largest revenue source - more than $3 for every $4 the city raised - is local government taxes on sales, utilities, tobacco, phones, business licenses, meals, machinery and tools and, most of all, property.

A dramatic rise in real estate values caused property tax revenue to be a greater portion of local tax revenue in each of the past four years despite decreases in the real estate tax rate, said Daughtrey and Hampton City Manager Jesse Wallace.

But city officials say that could change because the assessed value of all real estate is expected to be roughly the same while sales tax revenue is predicted to increase next year.

Taxes have paid for a variety of increases to Hampton's budget during the past 10 years. For example, said Hampton Budget Director Chris Snead, the city has paid for:

* increases to oil-based products including diesel and gasoline for its fleet of vehicles

* debt service for capital projects including two new pre-K-through-8th-grade schools

The City Council has tried to limit the cost to taxpayers resulting from assessment increases by reducing the real estate tax rate each year since 2004. The rate decreased 21 cents from $1.27 to $1.06 per $100 of a property's assessed value between fiscal years 2004 and 2008. The rate was dropped another two cents for fiscal year 2009. Despite rate reductions, property tax revenue went up because of the rising assessments, Daughtrey and Wallace said.

People eat out more now. So that affects taxes on sales, meals and lodging. In fact, revenue from the meals tax more than doubled in a decade, primarily because of new restaurants in the Mercury Boulevard corridor and Power Plant shopping center, Daughtrey said.

"I believe the Power Plant definitely has had a big impact," Daughtrey said.

Some of the improvement in meal-tax revenue is due to a rate increase in fiscal year 2002 from 4.5 cents to 6.5 cents for every dollar of prepared meals sold. Money raised from the additional 2 percent in meal tax and a 2 percent increase in lodging tax, are dedicated to the operation of the Hampton Roads Convention Center.

Sales-tax revenue declined between 1999 and 2003, but turned around the following year and increased for several years before deceasing slightly from 2007 to 2008.

The big challenge to sales tax revenue in Hampton during the past decade: Coliseum Mall, which was built in 1973. As shoppers flocked to other, more modern retail centers, Daughtrey said, the mall declined. In 2007 it was demolished to make way for Peninsula Town Center, a contemporary mixed-used development.

While the loss of the mall hurt sales tax revenue in the first part of the decade, sales-tax revenue improved with the addition of the Power Plant, which added anchor stores such as Lowes Home Improvement, Bass Pro Shops and BJ's Wholesale Club, Daughtrey said.

A bright spot for Hampton's sales tax revenue in fiscal year 2010 is the town center with its first-floor department stores, specialty shops with residential and office space on the second and third floors.

The first phase of Peninsula Town Center will open this year, and the city's sales-tax revenue should give a stronger showing in fiscal year 2010 which starts July 1, Daughtrey said.